Annu Baral is the Head of Consulting Services at LatentView Analytics, a data analytics and decision science company.
As we step into the second half of 2022, business leaders are thinking critically about their next move. Partisan politics and a likely recession are changing consumer behavior and forcing many C-suite leaders to look carefully at their budgets.
For many businesses, a post-pandemic subscription offering that isn’t generating the desired revenue could be on the chopping block. For legacy subscription players, subscribers are becoming increasingly difficult to maintain for a variety of reasons, forcing them to rethink their core offering.
Could a perfect storm of inflation, market saturation and significant churn mean the end of the subscription model as we know it? Likely not, but subscription-based businesses as well as those who’ve added a subscription service to their regular product offering will benefit from understanding how they can meet customers where they are.
We are on the cusp of “Subscription 2.0,” but in order to understand how to future-proof your subscription model, it’s important to understand “Subscription 1.0.”
There’s a lot of history here.
New subscription offerings are born every day. The subscription economy runs the gamut of industries and verticals from luxury travel to board games. Standouts like Netflix in media and entertainment, Rent the Runway in retail, Birchbox in CPG and LatentView partner Adobe’s Creative Cloud in SaaS were foundational to the subscription economy and have helped synonymize subscription with convenience and personalization.
But with inflation and the costs of goods and services rising, consumers are becoming wary of subscriptions. Many are opting for pre-subscription shopping habits to avoid paying what may be considered a non-essential convenience premium. Meanwhile, those in favor of subscriptions want to keep the cost down. According to research from The Kearney Consumer Institute, more than half of consumers surveyed would like to pay less than $50 per month for subscriptions.
The value of subscriptions for businesses is clear in their ability to receive mass amounts of customer data and recurring revenue from the consumer. For a subscription offering to survive in 2022, it must continue to provide equal or even greater value to the customer while still being profitable for the company. This is the basis of “Subscription 2.0.”
We’re all riding the wave.
Delivering clear value to customers is inherently tricky for subscription businesses: Many are considered non-essential, or even luxury. For most consumers, entertainment, fashion and boutique fitness can be given up when necessary. We know from Peloton’s post-pandemic subscriber drop that the company quickly reached the threshold of its total addressable market. This is not an uncommon result for subscription offerings with top-tier price tags.
We learned from Netflix’s Q1 2022 valuation that subscribers are fickle and can churn even with the best of brands. To weather these challenges, subscription businesses should focus on two critical improvements: Enhancing customer experience and reducing subscriber fatigue.
Strong CX can be the wind in your brand’s sails.
Good customer experience can buoy your product or service into new markets—but a bad one can have frustrated customers jumping ship and heading straight to Yelp to leave a review.
Excellent customer service brings to mind brands like Chewy.com, with its above and beyond dedication to customer appreciation, or Sephora’s no-questions-asked return policy, which has patrons widely evangelizing their customer-first approach. To successfully market a subscription program, brands must know the end-to-end experience of their customers and lean into CX as a key differentiating factor when price and product are equal.
We must address subscription fatigue.
There are several reasons why subscribers churn. Doubling down on household budgets, more enticing offers from competitors or price increases can all influence customers to cancel their subscriptions. That’s why as we move into “Subscription 2.0,” it’s critical to address subscription fatigue.
Subscribers feel fatigued when they fail to see the value, either based on the amount they are paying or the experience they’re getting. Companies can address this in two ways: by creating value by bundling additional products or services, or by creating more personalization so that customers get more out of the product.
Consider the subscription box FabFitFun. Customers pay $50/quarter for a box of products valued up to $300. The more tailored the products, the greater the likelihood that a customer will like everything in their box—easily convincing them that it was a worthwhile investment. The challenge for companies is to do so in a way that is still profitable to them.
We need to chart a map for the future.
Customer experience is the lifeblood of “Subscription 2.0.” But marketers with tightening budgets don’t have the luxury of experimenting until they discover the perfect user experience. The good news is that they don’t have to.
Whether you are building your subscription journey from the ground up or reevaluating your offering, you should consider how personalized your experience can and should get. What are the considerations of marketing to multiple generations? How can offerings be tailored for families versus single-person households or corporate offices? There are many things to consider, particularly if your customer experience is bridging a digital experience with a physical product.
Using the data at your disposal, hyper-personalization may be the answer to providing tangible value to your subscribers. To get as close to a “segment of one” as possible, aim to tailor your product offering to a single customer without adding additional stress to your marketing efforts.
In media and entertainment, this may look like improvements to your recommendations system for books, movies or music so that users are less likely to become fatigued and leave the app. In CPG and retail, hyper-personalization will mean anticipating purchasing behavior and creating a more seamless buying experience. Retailers should always question how they can make the process easier for their customers.
Highlight the value your subscription offers the customer.
In focusing on CX and combatting subscription fatigue, you can create a model that stands out among the competition. When you design your subscription around the customer, you can reduce churn and create a reliable source of recurring revenue—the ultimate goals of any subscription model.